Coinbase’s Investment in Circle Expected to Bring Financial Benefits

Coinbase Global Inc. has recently entered into a new arrangement with Circle, which is anticipated to have significant financial advantages, as per analysts.

The cryptocurrency exchange announced on Monday its decision to invest in Circle, the issuer of the USDC stablecoin. Simultaneously, they will be phasing out the jointly managed Centre Consortium responsible for overseeing the stablecoin. Furthermore, both parties will equally share in the interest income generated from the distribution and usage of USDC. They will continue to share revenue based on the amount of USDC held on their respective platforms.

Barclays analysts suggest that this new agreement could result in a low-single-digit increase in Coinbase’s interest revenue and a high-single-digit boost to earnings before interest, taxes, depreciation, and amortization (EBITDA). They highlight that interest income is almost entirely profit. Despite this positive outlook, the analysts maintain an underweight rating on Coinbase’s stock.

Bitcoin’s Market Decline and Its Potential Ramifications

Coinbase’s New Revenue-Share Agreement Strengthens Partnership with Circle

Coinbase, a prominent cryptocurrency exchange, recently announced a new revenue-share agreement with Circle, a leading digital currency company. In a tweet on Monday, Coinbase assured its followers that the update would not affect its previous outlook. However, analysts from Barclays pointed out that Coinbase had initially aimed for $300 million in subscription and services revenue in the third quarter, potentially leaving room for additional growth.

Oppenheimer analyst Owen Lau expressed optimism about the new arrangement, highlighting how it could incentivize both entities to foster the growth of the USDC ecosystem. He emphasized that the revised revenue-share agreement would increase the predictability of Coinbase’s interest income in the future, while eliminating the potential downside risk associated with an overemphasis on revenue sharing. Lau further explained that by taking an equity stake, Coinbase and Circle will strengthen their alignment and work together to expand the ecosystem. Lau rates Coinbase’s stock as “perform.”

In contrast, Mizuho’s Dan Dolev maintains a more pessimistic view of the agreement, seeing it as skewed towards the negative. Dolev argues that Coinbase’s increased exposure to stablecoins through its equity stake in Circle raises concerns about the sustainability of this asset class. He points out that the market cap of USDC (a stablecoin) has declined by 50% from its peak. Despite this perspective, Dolev maintains his underperform stance on Coinbase.

Overall, Coinbase’s new revenue-share agreement with Circle presents opportunities for growth and collaboration within the cryptocurrency space. While some analysts remain cautious, stressing the potential risks associated with stablecoins, others see this development as a positive step towards strengthening the USDC ecosystem.

Coinbase Shares Experience Minor Decline

Coinbase shares witnessed a slight dip of 0.5% during Tuesday’s session.